Recently in Asia Category

Few have been hit harder by the global financial and economic crisis than Japan. Its export-based economy heavily exposed to automotive and electronic goods came under severe pressure and challenges persist.

However, this economic tsunami will put a charge into the pace of structural reform - it is already happening in Japan's chemical industry with massive restructuring involving plant shutdowns, and a flurry of joint ventures and alliances.

Mergers and acquisitions, while likely to continue on a limited scale, are not the answer to the Japanese chemical industry's structural issues. Rather Japan is ready to begin a new era of strategic alliances to access feedstocks and leverage technologies.

Japanese chemical M&A activity has slowed considerably in recent years, with 10 deals over $25m in size involving a Japanese buyer or seller completed in 2006, four in 2008 and one in the first half of 2009, according to New York-based investment bank Young & Partners.

However, joint ventures and alliances are picking up. In August, Mitsubishi Rayon signed a $1bn JV deal with Saudi Arabia's SABIC to produce methyl methacrylate (MMA) and polymethyl methacrylate (PMMA) in Saudi Arabia for the automotive and electronics industries.

Mitsubishi Rayon also in September formed an alliance with US-based Cytec industries to develop carbon fiber composites for the next generation of aircraft.

But there could be some interesting M&A deals to come. Mitsubishi Rayon, which completed its $1.6bn acquisition of UK-based MMA producer Lucite International, may itself be the target of an acquirer. Rumors abounded this past summer that the company was in talks to be acquired by Japan's chemical leader Mitsubishi Chemical for up to $2bn.

With all the exciting changes in this industry, we are delighted to present the October 26 special issue of ICIS Chemical Business with our esteemed partner, The Chemical Daily, of Japan, whose editors provide invaluable insight into this market.

 

Photo credit: Syntagma Media

Many across the global chemical industry are pinning their hopes on China as a driver for recovery in demand for chemicals. Indeed, in recent months, we have been encouraged by some startlingly good import and export figures from the country.
High-density polyethylene (HDPE) imports nearly doubled in the first half of the year, while low and linear low density polyethylene (LDPE and LLDPE) jumped by around a half. Domestic chemical demand also appears to have rocketed.
This week, we analyze the causes of this apparent recovery and ask if it signifies a real turnaround.
Realizing that export markets were collapsing, the Chinese government has put in place enormous stimulus plans. The automotive programs, for example, resulted in sales of locally made cars rocketing 36% year on year in June. Huge amounts of cheap credit have also fueled growth. The question remains, though - how strong is real, underlying domestic demand?
China is pushing hard into specialties as it tries to diversify its economy. This will provide raw materials for products to satisfy the nation's burgeoning middle class. The figures are startling: between 2005 and 2020, China will add around 500m consumers who have an annual income of at least $10,000 (€6,800). That market is an opportunity not to be missed.

Nowhere is the global tectonic shift in chemical manufacturing more apparent than in the largest chemical company's latest restructuring and expansion moves.

Germany's BASF, which acquired Swiss specialty chemical giant Ciba for $5.1bn in April, laid out its massive restructuring plan last week. The bottom line - 23 out of 55 acquired production sites will be closed or sold, while the remaining sites will be "optimized" or restructured.

About 3,700 jobs will be cut, and the company will aim to achieve annual cost synergies of €400m by 2012.

The former Ciba sites are concentrated in Switzerland and elsewhere in Europe, with some plants in North America and Asia.

But also last week, BASF announced that the Chinese government has given the go-ahead for the company's $1.4bn expansion of its BASF-YPC joint venture site in Nanjing with state-operated energy and chemicals firm Sinopec.

The investment includes an expansion of the existing steam cracker and three existing plants, and the construction of 10 new chemical plants. The expansion will produce specialty chemicals for the Chinese market in areas such as construction, electronics, pharmaceutical, automotive and chemical manufacturing.

The trend reflects some of feedback from our very first ICIS Chemical Business US Advisory Board meeting held in New York on June 30.

Comprised of industry senior executives and analysts, the group took note of our weekly New Projects section listing all the projects announced for a week - in particular, how few were in North America and Europe.

Among the 12 new projects announced for the seven days of June 16-22, five were in Asia and two in the Middle East. Five were in Europe and the US, but among that latter group, two were storage facilities.

One week does not a trend make, but we suspect that new project announcements in Asia, the Middle East and Latin America well outpace those in the traditional manufacturing bases of the US and Western Europe.

But new projects only tell part of the story. The board indicated that they would also like to see a list of plant shutdowns and where these were taking place as well. We hear you - please stay tuned!

 

Photo credit: Ciba

CHINA'S $10bn deal with Brazil to lock up significant oil supplies from its energy firm and join in exploration, refining and petrochemical ventures, heralds a new age of cooperation between the two countries.

Under a 10-year deal, China Development Bank is giving a $10bn credit line to Brazilian energy giant Petrobras in return for the company sending an average of 150,000 bbls/day of oil to China in 2009 and 200,000 bbls/day from 2010. Petrobras needs the money to develop its huge reserves and China needs the oil.

China's energy major Sinopec and Petrobras are now discussing joint projects in refining, petrochemicals as well as exploration, said Petrobras CEO Jose Sergio Gabrielli de Azevedo at a press conference at the New York Stock Exchange.

The deals are part of a broader economic partnership between Brazil and China, which plan to put forth a joint action plan for 2010-2014. In April, China overtook the US as Brazil's largest trading partner for the first time.

But why not view this deal as a model for the US and other oil importing countries to secure supplies from abroad? Petrobras says it's financing needs are now all taken care of, with $30bn in funds raised this year, but there are always other opportunities.

China is aggressively locking up oil and other natural resources through deals and acquisitions. It's a race out there to secure increasingly limited resources.

With oil output in the next several years projected to decline sharply in Mexico, the second-largest oil exporter to the US at around 1.2m bbls/day, the US must seek additional supplies.

While the US is ploughing billions of dollars to develop its own energy resources, direct government lending to help develop much needed foreign oil supplies might not be a bad investment as well.

(Photo credit: Xinhua/Rao Aimin)

ASIA HAS roared back with a strong rebound in petrochemical and plastics prices. High hopes are being pinned on the region, and especially China, to lead the global economic recovery.

But as pointed out by James McIlvenny, senior vice president of Dow Chemical's performance products division, China, which represents 2-3% of global GDP, is not in and of itself large enough to drive "real growth."

McIlvenny gave a keynote speech at the Asia Petrochemical Industry Conference (APIC) in Seoul, South Korea, where the mood was cautious. While the recent price surge has given producers a nice window of solid profit margins, that window is likely to be shut.

Driven up by restocking, some demand recovery and as well as speculation, prices have risen on the order of 50% from their late 2008 lows. But many companies should view this period of strong prices not as a return to the good ol' days, but as an opportunity to restructure and reposition for the future.

New and low-cost commodity chemical production capacity is on its way from the Middle East and China, and there is still too much capacity out there.

Players in the mature economies of Asia as well as the US and Europe will have to shut down high-cost plants to compete in the new reality. And they must seek to move further downstream into specialties through an enhanced focus on innovation.

No doubt we are entering a period of unprecedented heightened global competition. But we must take into account the lessons of the past and not hinder trade between countries.

This was a major concern at APIC - that countries with an eye towards protecting their struggling domestic economies would put up increasing barriers to trade.

Korea Petrochemical Industry Association chairman Won-Joon Hur, cited the "all-out protectionism back in the Great Depression of the 1930s (that) eventually led to the delay in the economic recovery."

Indeed, let's not make it harder on ourselves and let free trade flow where it may.